Recovering UK economy shows broader, faster growth

Britain's economy grew faster than expected in the second quarter, benefiting from a broad-based pick-up in activity that looked to have put the country's burgeoning recovery on a firmer footing.

Gross domestic product expanded 0.7 percent from the previous quarter, data from the Office for National Statistics showed on Friday, beating its initial estimate and economists' forecasts and putting Britain's growth rate on a par with European powerhouse Germany.

"It does look like the recovery is becoming more self-sustaining," said Philip Shaw, economist at Investec.

Stocks gained after the data, which also showed output rose by a surprisingly strong 1.5 percent from a year ago.

The pound and government bond yields rose, highlighting expectations that the revival could force Britain's central bank to raise interest rates earlier than it has indicated.

British exports rose at the fastest pace since late 2011 and business investment grew faster than household spending, suggesting a shift towards more balanced growth in an economy that has been driven mainly by domestic consumption and imports.

In an effort to encourage spending and investment, the Bank of England said earlier this month it would not raise borrowing costs while unemployment remained above 7 percent, a level it did not expect to be breached for at least three years.

But the threshold may be crossed sooner if Britain's recovery maintains momentum, and since the bank gave its forward guidance, the news on the economy has been predominantly upbeat.

Factories' order books looked in their best shape for two years in August, consumer confidence and retail sales soared in July, and surveys found robust growth across manufacturing, construction and services at the start of the third quarter.

"The Bank of England is therefore facing a growing challenge of how to convince the markets and households that interest rates will not need to rise over the next three years," said Chris Williamson, economist at financial data company Markit.

In a speech next week, BoE governor Mark Carney is tipped to try to talk down expectations of an earlier rise in the base rate, which have caused conditions to tighten on money markets.